Friday, October 10, 2008

Value chain analysis stumps all

I’m addicted to this song right now since hearing the techno remix of it on the indie radio station in my car. Enjoy while reading about how to strategically evaluate a business value chain, I don’t know, perhaps it’s fitting!

I was caught in a funk today in one of my meetings. I was doing some primary research and asked the question ‘how does your company add value in the services it performs’ to two middle managers and the conversation kinda stalled. It wasn’t a particularly difficult question (and perhaps I should have phrased it as above in far fewer words than I did!), but still we stumbled through the conversation. Is business strategy really that difficult to conceptualize? Best practice would suggest that business strategy is well-understood by all employees in the organization but in reality it seems that only executives understand how the business functions and what processes contribute the most value. Even then it might be an idealized view of how the business should operate and can lack real cohesion and rigor about how business strategy gets implemented.

But today’s snafu made me reflect on business strategy. Understanding holistic value in business is a really tricky task. It requires enough perspective to see the end to end process yet still parse operations into discrete components and see the individual operational workings. And furthermore, how do we identify which process is critical to the business before we even undertake reverse engineering to see where the most value is added? Significant value will inevitably derive from the synergy of all processes at once or in sequence. Cost efficiencies, knowledge spinoffs, internal organizational development result from the greater operational process which can, in its own, be considered as a piece of the value chain.

Let’s take B!G’s projects:

Dollar for dollar, we derive the greatest return from our in-house advertising and design competencies. These are our highest margin services. If we break these down it’s difficult to determine where we are strongest at adding value to the client. It could originate from customized brand design services or it could arise from on-campus advertising campaign execution. Looking at the more consulting-oriented aspects of our business, these are our lowest margin services and in some instances loss-leaders to establish credentials and recognition for the business (to say nothing of the tremendous personal soft skills development we get from the consulting work). If we break down our marketing consulting services into its constituent parts, value chain analysis is even more challenging. How can you accurately measure whether the greatest shot of analytical nitrous comes from the primary client research we can perform or the composition of all learnings into a single deliverable.

If I can’t really answer these questions, then no wonder I stumped the middle managers I spoke with today with what I perceived to be a simple question about the most valuable part of their process. They’re a massive agency with a global client roster.

It’s difficult to manufacture the necessary competing perspectives – top-down and bottom-up – necessary for an effective analysis of a firm’s operational value chain. As marketing consultants we strive to approach each project with fresh eyes and objectively determine weak links from crucial points. However, this is a valuable, if headache-inducing, exercise to perform. Value chain analysis gets everyone thinking about what the organization does well and where its core strengths lie.

But a question unanswered is a problem unsolved. An evaluation of business strategy must carefully determine the point of greatest operational impact. You find this process by asking ‘if the business can only perform one action before it dies, what is it?

So what’s the heart?

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